I am fascinated by business models. I love dissecting the endlessly different ways in which entrepreneurs create and assemble their businesses. Living and working for the last 20 years in Silicon Valley, I have been fortunate to have had a front seat view to this creative process.
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Until now, I have never written an article for AllBusiness despite having worked here since 2006. But there a several trends I have been noticing over the last couple years that are driving me to want to contribute to the conversation and put myself in the middle of it.
The business model that has been catching my attention is what I would call “Some Assembly Required Businesses” (SARBs). These businesses are combining inexpensive cloud-based services, the far reach of the Internet, and the explosion of social media to reach specialized audiences and build profitable businesses that would have been difficult, if not impossible, to create in the past.
You can see a number of similarities in the manufacturing industry with the Maker Movement, which is well described by Britt Moran in her article “What Is the Maker Movement and Why Should You Care?”
“[It is] an evolution of millions of people who are taking big risks to start their own small businesses dedicated to creating and selling self-made products. In a world of mass-produced products, modern technology has made it easier than ever for a single individual to create and distribute items that are customizable and unique without having middlemen like manufacturers. This growing shift will continue to affect the economy and will likely have big implications on large retailers. It is a special time in history that will have a transformative impact on our future.”
Factors Driving the SARB Business Model
Social media. Social media has been around for some time, but it is maturing as audiences in each “channel” such as Facebook (NASDA:FB), Twitter (NYSE:TWTR), or Pinterest use the services for well-defined functions. People are coming to understand that each channel has its own language and purpose, and they are using that to better engage inside each channel. The services are also now building solid tools to reach, target, and aggregate demographic and special-interest audiences (at a cost, of course).
Cloud-based services. The Internet has exploded with thousands of cloud-based services that address just about every possible need a business has, often at no-cost or low-cost. A few examples would be:
- Canva: do-it-yourself graphic design
- LeanLaunchLabs: figure out what your customers problems are and build viable products to service those needs
- Join.me: instant online meetings
- Freshbooks: simple accounting for contract work
- Shopify: outsourced warehousing and shipping of hard goods, usually referred to as Drop Shipping
- Hubspot: inbound marketing automation for mere mortals
- Zendesk: customer service automation
- LiveChat: chat with customers
And that is just a tiny sampling of the thousands of services that have cropped up over the last several years. For pretty much any need you have, there is a cloud-based service.
Underemployment. There is an entire generation of intelligent and creative young adults that need to make a living but the old economy and slow economic growth are not providing them with the jobs they need. This is also true for the millions of older laid-off employees. All this is driving an entrepreneurial explosion driven by necessity and also a sense that people are tired of corporate life and are looking for ways to create businesses out of things they care passionately about. Don’t believe me? Go to Google Trends and type in “entrepreneur.” What you will see there is a huge “stair step” up in searches which begins at the start of 2009.
I am something of a data junkie who works with tons of data in my business, so I know all too well that a single point of data does not make a trend … but wow, it sure looks like there is a correlation between the onset of the Great Recession and interest in entrepreneurship. It also stands to reason.
Geographic reach. The Internet has never really had any geographic boundaries, but now with most of the economy plugged into the Internet in some way or another, the barriers to reach and sell to customers wherever they are has never been lower.
Modern product development methodologies. Product development was once the realm of specialized skill, but its latest incarnations, primarily in the forms of Agile Development and Lean Startup has popularized methods that help businesses quickly identify and fill real customer needs. Many of the concepts from those methodologies like “fail fast” and “minimum viable product” have become part of the mainstream.
Fast and easy outsourcing. When starting a new business, time is one of your most precious commodities and it can get filled up fast with things that the staff have little to no knowledge of and tasks that are trivial and time consuming, but necessary. Today it has never been easier to identify and use high-quality outsourced contractors that can address those needs and keep the team focused on the tasks that deliver the most value to the business. A few examples of services that do this are:
- ODesk: contractors by the hour or project
- 99Designs: design work of all kinds by bid
- Voicebunny.com: professional voice-over talent by the job
- Clarity.fm: on-demand business advice from experts
A Perfect Environment for This New Business Model
In aggregate, these factors provide a perfect environment in which to assemble a business, plugging together different pieces to build products or services designed for specific audiences.
Let me illustrate with an example. My wife Patty and I want to launch a small business together. Patty is originally from Colombia and well known amongst our Colombian friends as a fantastic cook. Every time she decides to throw a party with traditional dishes from home, every one of her friends show up. So after brainstorming for a couple weeks, we hit upon the idea of creating a food and culture website for Colombians living here in the United States. I started doing some research, and found that there are about a million Colombians living in the U.S. and according to Facebook, there are about 4 million “devices” in the U.S. showing interest in Colombia (yes, you can get that kind data out of Facebook).
To get the project going, I used a cloud-based service for Lean Product development called LeanStack where we have been working on defining things like customer problems, solutions, early adopters, success metrics, and such. I also got us an account with LeanKit, which is a handy project management tool. We decided on a name and contracted with an designer from one of the services above to design our logo. Even though I don’t yet know exactly what products and services we will offer, I quickly built a website using WordPress with the Genesis WordPress Framework.
We have a list of ideas that we think might provide value to this audience, but have not yet validated, from eBooks that contain traditional recipes cooked with the ingredients you can buy in the U.S., to monthly subscriptions of care packages of Colombian products that you cannot buy here, to live and virtual meetups, and so on. The common denominator is that the entire business will be executed from right here in our home using all the various online products and services at our fingertips.
I don’t mean to trivialize the amount of work involved here; it is still a lot of work. You still need to identify and understand your audience. You still have to identify and understand their problems. Your products still have to solve customer needs in a way that they will be willing to pay for. There is no shortcut for any of that (yet!). However, the barriers-to-entry for identifying problems in the marketplace, finding customers who will pay for solutions to those problems, validating concepts and building products or services to solve those problems, and then taking those solutions to market has never been more straightforward or less costly. Some Assembly Required Businesses do just that.
My next SARB article, which I am in the process of wrapping up, is about a couple of redheaded sisters who have created a thriving business for redheads! As part of this series, I want to find and interview SARB companies and share their stories with you here on AllBusiness Experts. If you have any suggestions on companies that fit this description that you think I should take a look at, fill out this brief form and I will consider featuring them here!
I also want to go one step further. That service I mentioned above that my wife and I are developing? I am going to develop the service and write about my experience here on AllBusiness Experts. The first step will be turning to the Lean Startup methodology to validate the need in the market while sharing with you how that is done, step-by-step.